Marco Rubio wants to get the government the revenue it needs through growth that creates new tax payers. That growth comes from those folks that have the money to invest. The more money they are allowed to keep from lower taxes, the more investment they will make and the more growth we will have creating more tax payers thereby more income for the government. Win-win-win-win. Wins all around!
This theory, a similar type of "trickle down economics" ideology, is predicated on the actions of those that currently hold the bulk of the available money in our society, those often referred to as the "one precenters."
Out of 117728 households, 1181 have income greater than $250K. 1181/117728 = 0.010 or 1%. It is important to look only on income and not on wealth:
Income is what people earn from work, but also from dividends, interest, and any rents or royalties that are paid to them on properties they own. In theory, those who own a great deal of wealth may or may not have high incomes, depending on the returns they receive from their wealth, but in reality those at the very top of the wealth distribution usually have the most income. (But it's important to note that for the rich, most of that income does not come from "working." G. William DomhoffIf the primary means of funding our government is through revenue generated from taxes, does a tax rate of 39% for the "one percenters" help us more than the 15% guys like Romney are paying now?
In my last post I asked:
So if a guy like Romney, one of those "one precenter" types is also going to be called a "job creator" then how will his income - which is investment income - be affected by increasing the cost to the business by adding jobs or increasing the pay?In order to pay 15% Romney's income had to come from capital gains and not from wages. According to CNN:
Romney took in $21.7 million in long-term capital gains over the past two years. Of that, $12.9 million was in so-called carried interest. Carried interest is a share of profits paid to general partners at private equity firms -- such as Bain Capital, which Romney left in 1999. General partners manage the firm's investments. If those investments are sold at a profit, the carried interest represents a portion of those profits above a minimum rate of return.So Romney makes money from investing his money - income - in firms like Bain Capital. What else produced capital gains for Romney? According to CNN:
Brad Malt, a lawyer who serves as trustee of the Romneys' blind trusts, said Romney pays all U.S. taxes on income from the trusts' foreign investments. Further, he said Romney has no role in choosing how the blind trusts invest his money. "The blind trust investments in the Cayman funds are taxed exactly as if Gov. Romney owned his share of the funds in the United States," Malt said.Hmmm. Okay, so Romney takes his money not used to buy gas and food and pay for his standard of living and invests it. That's exactly what Marco Rubio believes is the right course for the US; allow guys like Romney to keep more of their income so they can invest it by giving them a 15% tax rate on capital gains and not 39%.
So investment is happening, but is it generating growth in the form of new tax payers which is what Marco Rubio's model is predicated on for generating the revenue the government needs to operate and to pay down our debt? We either cut spending and increase taxes on the 1% - as Jon Stewart contends - or we only focus on growth of our economy.
The devils in the details. For "growth only" to work - as Rubio believes it will - it must produce new tax payers. This growth is dependent on guys like Romney - the one precenters with the money to invest - investing in new business that create tax paying employees who are currently paying zero income tax now.
Romney is investing, and growth is happening, but is that investment and growth creating the new tax payers Rubio believes will produce the needed revenue for our government?
If Romney generates income form foreign investments, that money is not directly producing a new american worker who will now pay taxes. If Romney puts money into the Cayman Islands, that money is not - directly - producing new employers in the US and therefore will not produce new tax payers. And if Romney, like his fellow one precenters, invests their money in companies like Bain Capital, is that money - that investment Rubio speaks about - the "only way" to generate the revenue needed to pay our bills and debt?
At the 15% tax rate, Romney was allowed to keep $5.46 million dollars. The government, with its deficit and debt, allowed Romney to do this because of the belief in the Rubio model. If Romney invests that money in foreign companies, the Cayman Islands, and into Bain Capital, is the Rubio model of "growth only" more myth than plausible?
Once again, let me be clear on this. The issue is not about Mitt Romney. I would probably do the same type of investing, though I am a little more keen on keeping it on US soil. The issue is on "growth only" as a means to fund the government. Mitt Romney is what "growth only" is dependent on. Foreign investments and Cayman Island accounts are not going to make Rubio's model work since it does not create new tax payers and only creates income that is taxed at 15%.
Next post: Does $5.46 million invested in Bain Capital create new tax payers?